tag:blogger.com,1999:blog-6263577133333272085.post1764895470621948145..comments2024-03-28T11:04:16.315+00:00Comments on Boffy's Blog: Cyprus – A Solution That Makes The Problem WorseBoffyhttp://www.blogger.com/profile/08157650969929097569noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-6263577133333272085.post-91161495346654782772013-04-12T07:29:26.798+01:002013-04-12T07:29:26.798+01:00Data yesterday showed that EU banks overnight depo...Data yesterday showed that EU banks overnight deposits at the ECB had fallen below €100 bn for the first time since November 2011. My guess that is because depositors are taking money out of EU banks.<br /><br />In other words, there could be a rapidly developing credit crunch again. Latest talk seems to be that Cyprus might be eased out of the Euro, given as predicted they now need to find a lot more money, and capital controls as again predicted keep being extended etc.<br /><br />I doubt Capitalism is going to collapse as a consequence of this crisis. My guess is that in the end they will have to do what is necessary - probably after German elections - which is to mutualise debt and issue EU Bonds. Before then the ECB will probably have to ease the way by engaging in some kind of money printing on the scale of the Bank of Japan.<br /><br />The Euro may fall close to parity with the dollar, especially as US QE may be reduced in a few months time.Boffyhttps://www.blogger.com/profile/08157650969929097569noreply@blogger.comtag:blogger.com,1999:blog-6263577133333272085.post-55589290162870541252013-04-12T01:37:52.860+01:002013-04-12T01:37:52.860+01:00Given enough rope, the capitalists will now hang t...Given enough rope, the capitalists will now hang themselves.<br /><br />Yusef Asabiyahhttps://www.blogger.com/profile/09952818400295047607noreply@blogger.comtag:blogger.com,1999:blog-6263577133333272085.post-26974712390297735042013-04-03T09:33:29.099+01:002013-04-03T09:33:29.099+01:00I just wanted to make clear that the basic error w...I just wanted to make clear that the basic error was not that I was classing deposits as assets, but that in haste I'd failed to read the reports correctly, and thought they were saying that it WAS deposits that were 8 times GDP.<br /><br />Of course, when banks assets rise, because of making loans, their deposits also tend to rise, because the way they make the loan is by also creating a deposit. The problem for Cyprus seems to have been in part that the deposits were not created in Cypriot banks. They were lending to Greece, by buying Greek Bonds, so the deposits were created in Greek banks.<br /><br />A large part of Cyprus problem is the fact that Greece was allowed to default without it being classed as a default so Credit Default Swaps were not triggered. So Cyprus banks lost a large part of their loans to Greece without being able to recover it via insurance through CDS's.<br /><br />The details of that need uncovering, and exposing, because it means that much of this crisis lies at the doors of the EU and IMF that imposed that deal.<br /><br />Slovenia seems to be the next country being lined up for similar treatment, but from what I can see Luxembourg is the most exposed. According to Jim Rogers the other day, he has already started getting his company to shift funds out of Spain and Italy, and reduced his personal bank deposits to below the guarantee limit - not that that will hold when the shit hits the fan in a couple of months.<br /><br />I saw a quick report on Bloomberg yesterday that I haven't had time to chase down, saying that Spain had seen a big fall in bank deposits in March.<br /><br />With Basel III putting further pressure on banks, another credit crunch looks likely. Stock market valuations are highly extended, and at this stage of the Long Wave, I expect the Rate of Profit to start falling - though the volume of profit is likely to continue to rise - which means things are set for another large stock market correction, which is likely to see a further scramble for cash.<br /><br />The global economy is growing again as part of the 3 year cycle. I ahd anticipated the EU would benefit from that too, but the austerity measures seem to have more than counteracted it, as they have in Britain. That means the relief that might have been gained from increased economic activity may not now appear, or will at least be delayed until the end of the year.Boffyhttps://www.blogger.com/profile/08157650969929097569noreply@blogger.comtag:blogger.com,1999:blog-6263577133333272085.post-17488996627408593332013-04-02T10:09:45.707+01:002013-04-02T10:09:45.707+01:00Yusef,
Actually,I think you are right. I think I...Yusef,<br /><br />Actually,I think you are right. I think I did make a pretty basic error there. In fact, I was wondering myself the other day when I saw reports that suggested deposits were around €80 billion.<br /><br />Its a problem with trying to respond to things quickly, and so making such basic errors, but no excuse.<br /><br />Even so, the basic thesis of the argument remains , because it still means the deposits are around 3-4 times GDP, and you'd expect them to be moving out, and in fact there seems to be signs of that. In fact, I'm wondering to what extent the crisis itself was started with a bank run, as some of these depositors were tipped off about problems and started to withdraw back in February and early March.<br /><br />The figures available certainly suggest that there were unusual outflows as early as February. That would tally with the proposed haircut now rising from the initial 40% proposed to up to 80%, as they find they have fewer available deposits than thought.<br /><br />The point then is that if the actual assets are bad, and you'd expect Cyprus property prices, for example, will tumble, it will be even more impossible to cover redemptions. So, my point that what was a €10 bn problem has been turned into a much bigger problem remains.<br /><br />But, thanks for pointing out the basic error anyway.Boffyhttps://www.blogger.com/profile/08157650969929097569noreply@blogger.comtag:blogger.com,1999:blog-6263577133333272085.post-90142089934926390972013-04-02T02:34:26.372+01:002013-04-02T02:34:26.372+01:00Given that one of the problems identified was the ...<i>Given that one of the problems identified was the fact that Cypriot Banks had deposits equal to 8 times GDP, the consequence of such an inevitable large scale capital flight are obvious. Cyprus GDP is $22.5 billion.</i><br /><br />I'm not sure Boffy, but you may be in error here. Cypriot banks have <i><b>assets</b></i> of 8 times GDP. Bank assets are not the same as bank deposits. Bear in mind banks class loans as assets, not liabilities, as all other businesses do. In other words, the Cypriot banks have extended a huge amount of loans -- 8 times the GDP of the nation! Or maybe you can point out to me where I have this wrong. Great blog, as always. Yusef Asabiyahhttps://www.blogger.com/profile/09952818400295047607noreply@blogger.com